Two-thirds of potential house buyers have been left in the dark about the Mortgage Market Review rules which were introduced last year, according to research from Ocean Finance.
31% of people who plan to buy a property within the next two years are unaware that mortgage rules were overhauled more than a year ago. A further 35% of potential buyers did know that mortgage regulations had changed, but said they felt confused by the new rules.
Ocean Finance said that in practice, Mortgage Market Review rules mean that borrowers will face increased scrutiny from lenders about their incomes and their expenditure including spending on things such as childcare, holidays and entertainment.
Yet 70% of those questioned were unaware that lenders are required to look closely at their spending. Consequently, a quarter said they haven’t changed their spending habits to help them qualify for a mortgage.
Of those who do know that lenders are required to examine spending, more than a fifth have reduced their spending on treats and have stopped contributing to life assurance and pensions to keep a greater proportion of their income in their bank accounts.
Just 24% of aspiring homebuyers questioned were aware that the new rules also test their ability to afford a mortgage if interest rates rise. And even fewer people (16%) knew that the rules would also test their ability to withstand changes to their personal circumstances.
To help demystify the new rules and ensure they are prepared to apply for a mortgage, almost a fifth of potential buyers have sought advice from an independent mortgage broker. Almost 30% have looked online for information about the rules and 14% have relied on their friends or family for advice. However, a third have not sought any advice on applying for a mortgage.
The research shows that a third of potential homebuyers are so concerned about the tougher mortgage rules that they expect to have to delay buying a house so they can save for a bigger deposit and get into a stronger position to obtain a mortgage.
Gareth Shilton, Ocean’s spokesperson, said: “More than a year after the new mortgage rules were introduced, potential buyers are still in a state of confusion about what they mean in reality. Even more worrying is that a large chunk of people who are gearing-up to apply for a home loan are not even aware that the mortgage rules have changed.
“As an industry, we need to do more to educate buyers and to guide them through a process which many people are finding understandably daunting.”